Northern Power Systems Corp ("
Northern" or the
“
Company”) (TSX:NPS) announced today its intention
to effect a financing pursuant to which the Company will issue
Convertible Subordinated Promissory Notes (the
“
Notes”) (the “
Financing”) to
certain new investors (each a “
New
Investor”) as well as certain existing investors,
including John Simon and Richard Hokin, who are both current and
significant shareholders of the Company and members of the
Company’s Board of Directors (the “
Existing and Other
Investors”) (the Existing and Other Investors
collectively, with the New Investors, the
“
Investors”) pursuant to the financial hardship
exemption available to companies listed on the Toronto Stock
Exchange (the “
TSX”) under certain circumstances.
Mr. Hokin is effecting the investment through CWE II, LLC. In
connection with the Financing and Northern’s reliance on the
financial hardship exemption, Northern highlights the following
material terms and results and impact of the Financing:
Under the Financing, the Company will raise C$2,647,080.04 or
US$2,000,000 and potentially up to an aggregate of C$3,639,735.05
or US$2,750,000 (“Max Financing”). The New Investors have agreed to
invest up to an aggregate of C$661,770.01 or US$500,000 which
amount is conditioned upon the Existing Investors investing an
aggregate of C$1,985,310.03 or US$1,500,000. The Investors may
convert the Notes at any time into shares of the Company’s common
shares (“Shares”). Interest under the Notes
accrues but shall not be due and payable until the maturity date.
Under the Notes the outstanding principal balance and accrued
interest under each Note shall be convertible, in whole or in part,
at the option of the Holder at any time prior to the maturity date,
into shares of common stock at a per share price of C$.0675 or
US$.051 (the “Conversion Price”). The Conversion
Price of C$.0675 per Share or US$.051 is approximately a 32.5%
discount to the market price of C$.10 per Share or US$.076 per
Share based on the volume weighted average trading price of the
Company’s common shares on the TSX for the five trading days
immediately prior to, and including, July 10, 2018. The Financing
is expected to close in a series of closings the first of which
will occur on July 27, 2018 (“Closing”).
The term of Notes is twenty-four (24) months and the Notes bear
interest of six percent (6%). Assuming a Max Financing, the
aggregate principal under the Notes, together with the aggregate
interest thereunder, if converted into common shares of the Company
at the Conversion Price, converts into approximately 66.57% of the
expected issued and outstanding Shares on Closing on a non-diluted
basis. The principal amount and aggregate interest under the Notes
represents the issuance of approximately 60,392,157 Shares or
approximately 253% of the currently issued and outstanding Shares
on a non-diluted basis. The Notes will automatically mature and be
due and payable on the 2nd year anniversary of the issuance
date. The aggregate interest due and payable under the Notes
assuming interest accrues for the full two-year term of the Notes
is US$330,000.
Currently, Mr. Simon holds approximately 3,306,304 Shares, which
represents approximately 13.86% of the expected issued and
outstanding Shares as of the date hereof. On Closing, Mr.
Simon, assuming a Max Financing and conversion of the Notes and
including his accrued interest, is expected to hold approximately
19,776,891 Shares, which represents approximately 49% of the
expected issued and outstanding Shares on Closing if only Mr. Simon
converts his Note into Shares and that no other Investors do
so. If all Investors converted the Notes, including accrued
interest, Mr. Simon would hold approximately 23% of the expected
issued and outstanding Shares on Closing.
Currently, Mr. Hokin personally and through CWE LLC, controls
and holds approximately 2,224,143 Shares, which represents
approximately 9.32% of the expected issued and outstanding Shares
as of the date hereof. On Closing, Mr. Hokin personally and through
CWE LLC and CWE II, LLC, assuming a Max Financing and conversion of
the Note by CWE II, LLC and including its accrued interest, is
expected to hold and control approximately 18,694,730 Shares, which
represents approximately 46% of the expected issued and outstanding
Shares on Closing if only CWE II, LLC converts its Note into Shares
and that no other Investors do so. If all Investors converted
the Notes, including accrued interest, Mr. Hokin would hold
approximately 22% of the expected issued and outstanding Shares on
Closing.
At Closing, the Financing, whether a Max Financing or not, will
trigger a change of control of the Company and Mr. Simon will be
the largest shareholder of the Company. At Closing, assuming a Max
Financing, Mr. Simon will hold approximately 19,776,891 Shares or
approximately 49% (assumes conversion of interest under the Note)
of the expected issued and outstanding Shares on Closing (both, on
a non-diluted basis). This percentage assumes that only Mr. Simon
converts his Note into Shares and that no other Investors do
so. Prior to the Financing, RockPort Capital Partners III L.P
held 4,997,655 Shares or approximately 20.9% issued and outstanding
Shares and was the Company’s largest shareholder. Following the
Closing of the Financing and assuming a Max Financing and the
conversion of the Notes and including accrued interest, Rockport
will own approximately 6.43% of the expected issued and outstanding
Shares.
Financial Hardship ExemptionAs the aggregate
number of Shares issuable upon the conversion of the Notes issued
in connection with the Financing exceeds 25% of the currently
issued and outstanding Shares (and the conversion price per Share
is less than the market price under TSX policies), and since
greater than 10% of the currently issued and outstanding Shares are
issuable to insiders of the Company, and since control of Northern
will be materially affected by the Financing Northern would
ordinarily be required to obtain shareholder approval pursuant to
Sections 607(g)(i) and (ii) and 604(a)(i) and (ii) of the TSX
Company Manual (the "Manual"). However, the
Company has applied to the TSX, pursuant to the provisions of
Section 604(e) of the Manual, for a "financial hardship" exemption
from the requirements to obtain shareholder approval, on the basis
that the Company is in serious financial difficulty and the
Financing of the Notes is designed to improve the Company's
financial situation. The application was made upon the
recommendation of the Special Committee of the Board of Directors
of the Company, free from any interest in the transactions and
unrelated to the parties involved in the transactions, and was
based on their determination that the transactions are reasonable
for Northern in the circumstances.
Typically, TSX places companies, like Northern, who submit and
rely on a financial hardship application under remedial delisting
review, which is normal practice when a listed issuer seeks to rely
on this exemption. However, the Northern has been under remedial
delisting review since May 24, 2018 when the TSX notified the
Company by letter (“TSX Letter”) that the TSX had
initiated a review of the Company’s eligibility for continued
listing on the TSX. The TSX Letter identified several
deficiencies regarding the Company’s compliance with the TSX
continued listing requirements, including the fact that (i) the
trading activity of the Company’s securities has been so reduced as
it does not warrant continued listing, (ii) the market value of the
Company’s listed securities has been less than $3.0 million for the
30 previous consecutive trading days, (iii) market value of the
Company’s publicly held listed securities has been less than $2.0
million for the 30 previous consecutive trading days and (iv) in
the opinion of TSX, it is questionable as to whether the Company
will be able to continue as a going concern.
The Company is presently evaluating possible courses of action
to regain compliance with the TSX continued listing
requirements. However, there can be no assurance that the
Company will be able to regain compliance or that the Company will
be able to maintain its TSX listing. TSX has provided the Company
with 120 calendar days, or until September 21, 2018, to regain
compliance with the TSX continuing listing requirements. The
TSX’s Continued Listing Committee of TSX is scheduled to meet on
September 13, 2018 to consider whether or not to suspend trading in
and delist the securities of the Company. The Company is entitled
to make submissions to the Continued Listing Committee to address
deficiencies on or before September 7, 2018. If the Company cannot
demonstrate that it meets all of the TSX continued listing
requirements by September 21, 2018, the Company’s securities will
be delisted 30 days from such date. This notification has no
immediate effect on the Company’s business operations, its listing
on the TSX or on the trading of the Company’s common stock. The
Company believes the Financing and the issuance of the Notes is a
step towards the Company regaining compliance with the TSX listing
requirements.
As of July 18, 2018, the Company has significant overdue
accounts payable of approximately US$5.0 million in the aggregate,
which is comprised of amounts owing to vendors, service providers
and other creditors and as further described below is in breach of
certain covenants under that certain Amended and Restated Loan and
Security Agreement by and between the Company and Comerica Bank
(“Comerica”) dated December 31, 2013 and as
amended (the “Loan”).
The Proposed Financing and issuances of the Notes are important
steps for Northern to better capitalize the Company which in turn
will enable the Company (i) to make progress towards addressing
Northern’s accounts payable obligations, (ii) to take positive
steps towards becoming compliant with certain covenants under Loan,
(iii) to more effectively execute its commercial strategies in both
the distributed wind and energy storage segments, including
addressing certain short term obligation relating to certain near
projects and the expected return of commercial activity in Italy,
the largest revenue generating market for Northern historically,
and (iv) to take positive steps towards regaining compliance with
the TSX listing requirements.
As a result of regulatory and political inaction, the Italian
feed-in-tariff for distributed wind that drove sales of our
distributed wind turbines in 2017 expired on June 30, 2017 without
extension. Uncertainty regarding the status of a new
feed-in-tariff and prolonged delays surrounding the drafting,
approval, adoption and ultimately the implementation of a new
feed-in-tariff regime in Italy for distributed wind, together with
uncertainty surrounding the Italian election and government, has
brought 2018 sales of our distributed wind products in Italy to a
standstill. In early June 2018, a new Italian government was
formed and we now anticipate that the new feed-in-tariff to be
implemented in the fourth quarter of 2018. With a new
feed-in-tariff, Northern expects that Italy, once again, will be a
robust market for our distributed wind turbines. The issuance
of the Notes in the Financing provides the Company resources to
respond to the anticipated commercial activity that is expected as
the exact timing of the implementation of the new feed-in-tariff in
Italy becomes more certain.
Further, on May 29, 2018, Comerica informed Northern that the
Company is currently not in compliance with two covenants
(collectively, the “Covenants”) under that certain
Amended and Restated Loan and Security Agreement by and between the
Company and Comerica dated December 31, 2013 and as amended (the
“Loan”). The Covenants require that the Company (i) remain the
owner of unencumbered liquid assets having a value of not less than
one million dollars (US$1,000,000) and (ii) hold no more than five
hundred thousand dollars (US$500,000) at banks other than Comerica.
The Company has been working with Comerica to obtain a limited
waiver relating to the Company’s compliance with the two Covenants
and is exploring with Comerica amending the Loan, including the
Covenants, to facilitate the Company’s compliance with its
obligations under the Loan. The Proposed Financing, is
subject to and conditioned upon the Company seeking and obtaining a
waiver with respect to the defaults or a forbearance agreement or
an amendment to the Loan. As of July 18, 2018, the
Company had approximately US$1.0 million in obligations outstanding
under the Loan. In connection with the Financing, Comerica
agreed to forbear existing defaults and non-compliance under the
Loan through end of November 2018.
About Northern Power Systems Corp.Northern
Power Systems designs, manufactures, and sells distributed power
generation and energy storage solutions with its advanced wind
turbines, inverters, controls, and integration services. With
approximately 21 million run-time hours across its global fleet,
Northern Power wind turbines provide customers with clean,
cost-effective, reliable renewable energy. NPS turbines utilize
patented permanent magnet direct drive (PMDD) technology, which
uses fewer moving parts, delivers higher energy capture, and
provides increased reliability thanks to reduced maintenance and
downtime. Northern Power also develops Energy Storage Solutions
(ESS) based on the FlexPhase™ power converter platform, which
features patented converter architecture and controls technology
for advanced grid support and generation applications.
Northern Power has been a technology innovator for over 40 years
and serves clients around the globe from its US headquarters and
European offices. To learn more,
visit www.northernpower.com.
Notice regarding forward-looking statements:This release
includes forward-looking statements regarding Northern Power
Systems and its business, which may include, but is not limited to,
product and financial performance, regulatory developments,
supplier performance, anticipated opportunity and trends for growth
in our customer base and our overall business, our market
opportunity, expansion into new markets, and execution of the
company’s growth strategy. Often, but not always, forward-looking
statements can be identified by the use of words such as “plans”,
“is expected”, “expects”, “scheduled”, “intends”, “contemplates”,
“anticipates”, “believes”, “proposes” or variations (including
negative variations) of such words and phrases, or state that
certain actions, events or results “may”, “could”, “would”, “might”
or “will” be taken, occur or be achieved. Such statements are based
on the current expectations of the management of Northern Power
Systems. The forward-looking events and circumstances discussed in
this release may not occur by certain specified dates or at all and
could differ materially as a result of known and unknown risk
factors and uncertainties affecting the company, including risks
regarding the wind power industry; production, performance and
acceptance of the company’s products; our sales cycle; our ability
to convert backlog into revenue; performance by the company’s
suppliers; our ability to maintain successful relationships with
our partners and to enter into new partner relationships; our
performance internationally; currency fluctuations; economic
factors; competition; the equity markets generally; and the other
risks detailed in Northern Power Systems’ risk factors
discussed in filings with the U.S. Securities and Exchange
Commission (the “SEC”), including but not limited to Northern Power
Systems’ Annual Report on Form 10-K filed on April 2, 2018, as well
as other documents that may be filed by Northern Power Systems from
time to time with the SEC. Although Northern Power Systems has
attempted to identify important factors that could cause actual
actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors
that cause actions, events or results to differ from those
anticipated, estimated or intended. No forward-looking statement
can be guaranteed. Except as required by applicable securities
laws, forward-looking statements speak only as of the date on which
they are made and Northern Power Systems undertakes no obligation
to publicly update or revise any forward-looking statement, whether
as a result of new information, future events, or otherwise.
CONTACT INFORMATIONNorthern Power Systems Corp.
Ciel R. Caldwell, President &
COOir@northernpower.comwww.northernpower.com
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